I've heard the term gray market before but this 'new black market' blew me away.

Some quick facts:

* At over $10,000,000,000,000 , if it were a country, it's GDP would be second in the world only to the US
* It currently employs 1/2 of the world's workforce
* It is estimated to employ 2/3 by 2020
* These numbers (and this market as a whole) aren't including things like gun running, illicit drugs, and human * trafficking, etc.
* 'Legitimate' companies like P & G claim this market accounts for 20% of their business
* P & G also claims it represents their largest growth sector
* Despite a low percentage, it still represents $1,000,000,000,000 in the US

Not many people think of shantytowns, illegal street vendors, and unlicensed roadside hawkers as major economic players. But according to journalist Robert Neuwirth, that’s exactly what they’ve become. In his new book, Stealth of Nations: The Global Rise of the Informal Economy, Neuwirth points out that small, illegal, off-the-books businesses collectively account for trillions of dollars in commerce and employ fully half the world’s workers. Further, he says, these enterprises are critical sources of entrepreneurialism, innovation, and self-reliance. And the globe’s gray and black markets have grown during the international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions. It’s time, Neuwirth says, for the developed world to wake up to what those who are working in the shadows of globalization have to offer. We asked him how these tiny enterprises got to be such big business.

Wired: You refer to the untaxed, unlicensed, and unregulated economies of the world as System D. What does that mean?

Robert Neuwirth:There’s a French word for someone who’s self-reliant or ingenious: débrouillard. This got sort of mutated in the postcolonial areas of Africa and the Caribbean to refer to the street economy, which is called l’économie de la débrouillardise—the self-reliance economy, or the DIY economy, if you will. I decided to use this term myself—shortening it to System D—because it’s a less pejorative way of referring to what has traditionally been called the informal economy or black market or even underground economy. I’m basically using the term to refer to all the economic activity that flies under the radar of government. So, unregistered, unregulated, untaxed, but not outright criminal—I don’t include gun-running, drugs, human trafficking, or things like that.

Wired: Certainly the people who make their living from illegal street stalls don’t see themselves as criminals.

Neuwirth: Not at all. They see themselves as supporting their family, hiring people, and putting their relatives through school—all without any help from the government or aid networks.

Wired: The sheer scale of System D is mind-blowing.

Neuwirth: Yeah. If you think of System D as having a collective GDP, it would be on the order of $10 trillion a year. That’s a very rough calculation, which is almost certainly on the low side. If System D were a country, it would have the second-largest economy on earth, after the United States.

Wired: And it’s growing?

Neuwirth: Absolutely. In most developing countries, it’s the only part of the economy that is growing. It has been growing every year for the past two decades while the legal economy has kind of stagnated.

Wired: Why?

Neuwirth: Because it’s based purely on unfettered entrepreneurialism. Law-abiding companies in the developing world often have to work through all sorts of red tape and corruption. The System D enterprises avoid all that. It’s also an economy based on providing things that the mass of people can afford—not on high prices and large profit margins. It grows simply because people have to keep consuming—they have to keep eating, they have to keep clothing themselves. And that’s unaffected by global downturns and upturns.

Wired: Why should we care?

Neuwirth: Half the workers of the world are part of System D. By 2020, that will be up to two-thirds. So, we’re talking about the majority of the people on the planet. In simple pragmatic terms, we’ve got to care about that.

Wired: You talk a lot about wares that are sold through tiny kiosks, street stalls, and little informal markets. Where do those goods come from?

Neuwirth: The biggest flow of goods is from China. It’s no secret that China is the manufacturing engine of the planet. In a lot of ways, they’re more capitalist than we are. If someone wants something made—even if that person isn’t licensed—a Chinese factory will make it. It’s also easy to deal with China. You can go to the local Chinese consulate and get a tourist visa within a couple of hours. You can’t say the same about coming to the US. So African importers, for instance, travel to China and commission Chinese firms to make goods for them to sell in Africa.

Wired: But it’s not all Chinese manufacturers, right? In your book, you write about how huge international corporations want to get their goods into informal markets.

Neuwirth: Sure. Procter & Gamble, Unilever, Colgate-Palmolive: They sell lots of products through the little unregistered and unlicensed stores in the developing world. And they want their products in those stores, because that’s where the customers are.

Wired: How does that work?

Neuwirth: Basically, they hire a middleman. Procter & Gamble, for instance, realized that although Walmart is its single largest customer, System D outposts, when you total them up, actually account for more business. So Procter & Gamble decided to get its products into those stores. In each country, P&G hires a local distributor—sometimes several layers of local distributors—to get the product from a legal, formal, tax-paying company to a company willing to deal with unlicensed vendors who don’t pay taxes. That’s how Procter & Gamble gets Downy fabric softener, Tide laundry detergent, and all manner of other goods into the squatter communities of the developing world. Today, in aggregate, these markets make up the largest percentage of the company’s sales worldwide.

Wired: You write that there are even street-vendor-specific brands.

Neuwirth: Absolutely. A good example is UAC Foods, which is based in Nigeria but active throughout West Africa and traded on the Nigerian Stock Exchange. It’s a highly formal company that was originally incorporated by the British more than 100 years ago. UAC Foods owns hotels and restaurants, but it also has this product called the Gala sausage roll. You never find Gala being sold in normal stores. It’s sold only by unlicensed roadside hawkers and at roadside kiosks. Basically, UAC recognized that this product wasn’t going to sell well in a normal store. But sausage rolls are in demand where people are on the go, when they need a quick snack on the side of the highway or in a traffic jam. So UAC relies on this informal phalanx of thousands of unregulated hawkers who sell Gala sausage rolls all over the streets of African cities. This is UAC’s distribution channel for this one product.

Here is another article giving a more detailed analysis and examination along with some stories from 'the front lines':
The Shadow SuperpowerBY ROBERT NEUWIRTH | OCTOBER 28, 2011

Quote:

With only a mobile phone and a promise of money from his uncle, David Obi did something the Nigerian government has been trying to do for decades: He figured out how to bring electricity to the masses in Africa's most populous country.

It wasn't a matter of technology. David is not an inventor or an engineer, and his insights into his country's electrical problems had nothing to do with fancy photovoltaics or turbines to harness the harmattan or any other alternative sources of energy. Instead, 7,000 miles from home, using a language he could hardly speak, he did what traders have always done: made a deal. He contracted with a Chinese firm near Guangzhou to produce small diesel-powered generators under his uncle's brand name, Aakoo, and shipped them home to Nigeria, where power is often scarce. David's deal, struck four years ago, was not massive -- but it made a solid profit and put him on a strong footing for success as a transnational merchant. Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded alternative economic universe of System D.

It seems like a libertarian's wet dream realized, but I wonder how long it will last. I can't help but think that as this sort of information about how much wealth is actually out there is disseminated, that those in power or those with power will makes grabs at pieces of it though force._________________...if a single leaf holds the eye, it will be as if the remaining leaves were not there.http://about.me/omardrake

Last edited by Darqcyde on Fri Feb 03, 2012 12:36 am; edited 1 time in total

While China's legal system may resemble one that interprets and upholds the law, the reality is that courts, judges, and lawyers answer to the CCP's dictates. To reconcile the growing number of indictments on the grounds of "endangering state security" with the lack of armed, organized threats to the Chinese state, it helps to try and understand the government's interpretation of what constitutes a threat. The poet Zhu Yufu got a decade in prison on charges of subversion in part for writing, "It is time, people of China! It is time…The square belongs to us all; our feet are our own…It is time to use our feet to go to the square and to make a choice…We should use our choices to decide the future of China." At a time of unprecedented wealth and power, it is telling that the Chinese government finds such words so threatening.

_________________...if a single leaf holds the eye, it will be as if the remaining leaves were not there.http://about.me/omardrake

Last year, U.S. Customs and Border Protection seized 25,000 shipments of counterfeit goods that were making their way into the country. The total value of that loot: $178.9 million. Here are the top 10 fakes and how to spot them:

Electronics: Value of counterfeits seized: $39 million
Retail value: $101.2 million
Percentage of total seizures: 22%

ShoesValue of counterfeits seized: $25.3 million
Retail value: $97 million
Percentage of total seizures: 14%

Prescription DrugsValue of counterfeits seized: $16.9 million
Retail value: $25.2 million
Percentage of total seizures: 9%

I'm not sure what we (we being liberal western folk like myself) don't like about this. Not to get me wrong, I was very interested in the story. Is there a problem with it? It seems like P&G is hiring someone to price diferentiate for them - problem?_________________ArmedWithScience.Com

Hey mouse! Been away, lurking from time to time. The funny thing about lurking is that it makes you feel like the first thing you say after a long time has to be super important - kind of like when you first register and you want your first post (ever) to be impressive. How are you?